Category Archives: bank

but not quite sure which business I want to focus on when answering. Perhaps I’ll do both. I’m squarely in the service industry with both my funeral home and my cake business. One can be thought of as a necessity in some circles.

With my funeral home business I consider that while I am the only black funeral home in my area (and yes the funeral business is split on racial lines) I have to think of the economic condition of the community in which I serve. Its in a rural area first and foremost and my customer’s cant afford the price if I moved to the city where I would have about 75 different companies to compete with so my market rate differs. Not that my wholesale products take into consideration the fact that I’m in a rural community. I pay the same price wholesale as I would if I was located in Atlanta which makes pricing my goods and services very different. I admit to at times running at a deficit, but I can do that as my land and all of my buildings and cars and such are completely paid for. I run a debt free business in every aspect. I’m also in an industry where I can’t withhold my services for lack of payment so I offer and keep extensive books on payment plans. Markup for me consists of maintenance of property, taxes, employee salary and benefits, monthly upkeep- gas, electricity, chemicals, fuel, etc. I try to do everything as in house as possible, so I have a auto mechanic on staff. I’m old school -4th generation – so I’m not above bartering for my services in this area. Most of my profit though is made simply because I have a complete market share and therefore don’t have to raise my rates every time my suppliers raise their rates. I can afford to buy in bulk in many instances so I’m still operating on 2012 costs with some things. Automotive Fuel has been the biggest variable with me – it costs a lot to bring my cars back home (dead heading miles). I charge .85 cents per mile (which is above the federal reimbursement rate for instance) every time one of my cars cranks up, in addition to a flat fee for use of the vehicle. I see that many people are opting to drive themselves now versus getting in a limo. They are at least thinking about their costs which in the past-folks have just assumed that they should use a limo. My other profit comes from extending credit to my customers.

In the cake world, I’m of a different mindset. The products I sell are discretionary. Nobody needs cake…its a want and often a want people can accomplish themselves. However, I cater to a niche market – those people who cannot create a cake like I can and I charge accordingly. If I out price someone from getting a cake from me, that’s intentional, they aren’t my target market client. (This was a conscious choice I made, because this is a hobby I’ve turned professional and something I love to do without a headache or hassle.) I pick my client as they pick me and I’ve turned some people away that I just prefer not to work with on creating their cake. I’m of the impression (mistaken or not) that in the competitive cake industry in the city, people believe that the higher the price, the more exclusive the product. EVERY cake I make has a ridiculous profit margin because the people who are willing to buy my cake, are willing to pay it. Again, I take into consideration general overhead but I buy cake flour, powdered sugar and other dry ingredients in bulk – I bought 300 pounds of powdered sugar just the other day. Dairy products are a little more difficult to source and store in bulk form but I’m working on that this year. These fresh ingredients are my only fluctuating cost which I can’t control and I charge for my creativity at a ridiculous hourly rate. If I get my bakery moved to a store front and out of my basement (where its licensed), then I will buy a massive walk-in which will allow me to buy fresh ingredients in bigger quantity. I’ll need your eggs Kathryn 🙂

No the two businesses share nothing in common – I don’t even take a cake to a repast. I take that back – I’ll barter a cake as I did for my business cards and as I am doing for a revamped website.

Its about what it is costing me to get them. To a point, other’s prices don’t reflect what is going on in MY business. About 95% of what we sell is products. We will look at competitors prices but only as a local guide to what things cost. We do not base our prices strictly on what other companies sell the same product for. For example we have a couple of local competitors who sell boots but they don’t have the depth and breadth of product we have so they likely get fewer discounts from their vendor due to their low volume. We also look at the big box store’s prices. They may have the same stock numbers but they do not always carry a full range of sizes nor, for example, will they order a single pair of boots, for a customer when they are out of that size. We will order a single item of anything if it’s available and it’s a company we deal with. Academy or Wal-Mart or Cabella’s (as examples) will not do that. (If it’s something we do not carry there are conditions for return.) So comparing what we sell to a limited selection that others carry is not a true comparison.

For you, providing a service, you need to figure out what it’s costing YOU to provide that service. Of course after this you can see where you stand among your competition. If it costs you $100 to provide a service and it costs your nearest competitor $80 and you try to arbitrarily meet your competition, you in the hole before you get started. Possibly there would be ways to reduce your cost and still provide quality work or maybe your competitor is not providing the same level of quality, guarantee, etc.

There is a lot more to it than it appears on the surface. You probably have some of the same costs even though you are selling a service. Make sure you are including all theses costs or you are losing money on every ticket because even service oriented businesses have almost all these costs. We are adamant that we will not give stuff away. If we cannot sell an item at a profit, we will not sell it in our store. By then, if we are not making a profit, we are giving it away.

>>I think we need to raise rates, but we may lose clients because of it and that makes us really nervous.<<
Also think about it this way. If your rates are really low compared to your competition, potential customers may think, “How great can their finished product/service be if they are that cheap?” If you raise your prices you may lose customers. However you may gain some as well. If you decide to increase prices, it is a good idea to give your current customers a head’s up, as I am sure you are aware. It would be nice to send a cover letter with a “new fee schedule” by mail with about 30-60 day’s notice. For new customers you could go ahead and start charging the new fee schedule right away.
One more thing. In our case, dh and I do not work for free at our company. We each draw a monthly salary that is not slave wages but not a king’s ransom either. It is enough to have a reasonable lifestyle. We must live on the frugal side and do not drink champagne and eat caviar every night after work. LOL Really, we do not eat or drink either one! Believe me we have met people over the years who did not allow for a salary when running their own company. It gets me how some people think they are earning a living when they don’t take a salary from their business and they wonder why they have to keep robbing Peter to pay Paul. There is a couple in our Bible study who are about 10-15 years older than us. They used to be self employed, he was an electrician and she helped by answering the phone, etc. She remarked one time how they never drew a salary because “they couldn’t afford to”. How can you afford NOT to draw a salary? LOL
When I started my coaster business in December 2012, my price was lower than what I charge now. I realized it was too low when I looked online & saw what others were selling at craft shows & compared quality. Also when I gave a set as a Christmas gift and the price was really too low, the recipient said, “Oh, these would sell in _____(a local upscale gift store) for $25!” My price was about 1/2 that, so I realized almost right way that my prices were too low. Since then I have gone up. I think I have found that “spot” that Kathryn talked about. My prices on my website ($30) include shipping but locals pay only $20 per set because I don’t have to worry about shipping, packaging, etc. When I made a price increase I first went to $16 for a while then went to $20 and have remained there since.
Shay, I know some of this, maybe all of it, does not apply to you. And it seems I’ve chased some rabbits. However, I hope it helps.

For us, employees weren’t the main cost; feed and infrastructure was. But we did include employee time for all our products so that we’d know not only how many hours it took per product, but also how much that labor cost us.

We then looked at what we were charging, versus what that product cost us to produce. In a few instances we were already priced just about right, but in many instances we were priced too low. For ag products it’s relatively easy to raise prices during winter because the products are seasonal, and there’s a bit of a gap in between the last of our sales, typically around Thanksgiving, and the first sales of the new year, typically March. Sticker shock from the holidays has come and gone, other prices have already crept up and folks have resigned themselves to things costing more in the new year. So during that break even analysis last year, we set our 2013 retail prices at just about 10% above cost. Interestingly enough, that happened to be where my “feel” for the “right” price also happened to be, and where the going rate typically hovered.

Having said that, though, we did discover that the more basic the food item, the more pushback there was with the pricing. We also found that the market venue had a dramatic effect on whether our prices were perceived as “right”. For instance, consider the standard carton of 1 dozen eggs. If you go to the grocery store, you’ll find a wide range of prices, with the top-end egg easily costing 3x as much as the bargain egg. When we raised our prices away from the bargain basement price (which was below our cost), to that 10% above cost, we started getting complaints from customers that they could buy eggs at the grocery store for less. Yet, they were very quick to point out that our eggs were better than even the best of the eggs from the grocery store. So there was a definite disconnect between the price they paid and the quality they received. Frankly, they wanted the best egg at the bargain price. I even had one gal tell me that it was my duty as a farmer to go into the red so that her family could afford to eat our good eggs. When we lost her as a customer, that didn’t bother me in the slightest.

Yet compare our experiences with that batch of customers (along the lines of a CSA), to folks who would buy from us at the farmer’s market. We went there with higher prices than what we charged folks who came to the farm, because it took more work for us to get to the market, do the setup, booth rental, etc. So imagine our surprise when we were told that our egg prices were still too low, and we HAD to raise them. Excuse me? The folks who went to the farmers’ market were expecting higher priced items, and they became suspicious when those prices were too low. Okie dokie, so we raised our prices there and no one batted an eyelash. We’ll be going back there this year specifically for that reason.

I know you’re not selling eggs, but perhaps that gives you some food for thought (no pun intended) that it’s not just the markup; it’s also how you’re marketing and to whom. I do think that 10% markup is just about perfect, at least for our range of products. And if you’d like to see an example of our breakeven analysis, I’ve got them all in one Excel file, with each income stream on a different tab. Maybe that will give you some ideas for your own calculations. But yea, heck yea, any business who wants to stay in business has GOT to know those types of figures.

All you self-employed people out there, I’ve got a question. Do you know your costs per item profit? Do you know how valuable your employees are by billable hour? Do you keep tabs on whether or not a certain product or service is worth offering based on a percentage of profit?

I’m curious to find out. What is a good markup? 10%, 20%? How often do you raise rates?

We haven’t raised rates per hour in a long time. Even though our rent, utilities, and health ins has gone up.

When we bought the house, I expressed concern about that, but we were told that most people refinance before it is due. So, for the first 6 years or so, we paid our 255 a month. After six years, we still owed 32,000 so I got worried and did some checking. I realized that we’d have most of the balance left after the 15 years. Given that housing prices were going down, I was afraid that we would not be able to refinance. That was when we started adding extra from each week’s check. Now, in two years, we have paid off an additional 5 thousand. We still have 27 thousand to go, but we’ve paid off more in the last two years than we did in the first 6 years. From what I calculated, if we keep up our extra weekly payments, we should have no trouble having it paid off by 2020.

If I were not doing this, in 2020, whatever the balance was would be due. I’d have no idea whether they would perhaps give us another loan, but I’m pretty sure that if we did not have equity, they would not. It’s with Wells Fargo. Given that our house fell from 250 thousand down to 130 thousand about a year ago and now is inching slowly up (now it’s 145 thousand), I am not sure that we will have any equity by then. The total that we owe is 197 thousand.

We did halt the extra payments during the 6 weeks of one day a week furlough and will halt them until we know for sure that this government shutdown is not going to screw with our income.

A mention was made recently about Early Retirement Extreme. Intrigued, I took a look at it – both the wiki and the blog. Honestly, it’s not somewhere that I want to go, especially since I’m raising two boys on my own (I’m a widow), ages 12 and 10. But it set me to thinking that if those people can be so extreme, I could certainly step up my game a bit.

Some background – I have a comfortable job, which is as secure as anything can be (that is, I’m pretty sure it’s secure). I telework from home fulltime.

I save enough for retirement through a thrift savings plan (federal job), Roth IRAs, and the kids’ college accounts (529 plan). I have a few pensions in play, both from past jobs as well as my current position, rollover 401K, etc. I’m on target to have a nest egg of about 2.2 million at retirement.

We take a good vacation every year. I can pay the bills plus save some extra on the side. I shop at yard sales for household furnishings and clothes, but spend way too much at Costco! I moved to a college town purposely after my husband died so that my boys could stay at home while attending college and they won’t even need a car (bicycles rule in Chico, CA).

I still have a mortgage a bit above $160,000 but the house is probably valued around $400,000 (Zillow puts it at $463K). At my current repayment rate, I will have my home paid off in just under 12 years.

I was toying with the idea of throwing any ‘extra’ money towards the mortgage (my heart says to do that) but the analytical side of me says no, invest aggressively. I’ve been investing that money instead in the Lending Club and I’m very pleased with my return (currently 18% but will probably end up being around 11% after some default way down the road) and will continue to invest about $300 a month there.

So all is good but I can do better. So, I think I’m going to do a reboot of my finances and put myself on a bit of a financial diet. Trim a little bit here and a little bit there and throw any of that money towards the mortgage. So I can do the smart investing AND try to chip away at that last big debt – the mortgage.

I’m going to learn how to groom my dog myself instead of paying $35 every few months to have it done professionally. I’m going to have one ‘no spending’ week per month (ok, maybe fruit and milk). I’m going to focus on eating through the pantry and freezer stores. I’m going to declutter and sell anything that isn’t beautiful or useful (now, not someday). I won’t just wander through Costco and buy whatever strikes my fancy!

I will continue to pay my handyman/contractor for home improvements, but there are things I can do myself such as painting, redoing the stairs, etc.

I honestly don’t need a housekeeper (I have one that comes every two weeks for 3-4 hours). Instead, I will consider that cardio and clean energetically for my workout. The kids can help more with cleaning the bathrooms and vacuuming.

I honestly think that if I focus hard on this, I can probably free up $1000 extra a month to apply to my principal. If I did that, I could pay off my mortgage in 6 years and 2 months, not my current 11 years and 11 months. Wow! It would be paid off right around the time my older son startscollege.

Typing all this, I’m kind of getting excited about the thought. OK, accountability check. My current mortgage is $161,840. Let’s see just how much I can kill it over the next month or two.

First, both our businesses are run on a cash basis. If we cannot pay cash, we don’t do it, buy it, or whatever. It wont happen till we have cash. The way I see it, paying interest adds unnecessary costs to overhead and eats into profit and expansion.

Second, most of what we sell at our store front consists of necessary work clothing for men and women in our area, mostly men. Due to their hazardous work most are required to wear steel toe boots, safety hats, and most companies are going to fire retardant clothing. Safety toe boots/shoes and FR clothing are our two big sellers. We try to stick to basics at our store but do have some very nice western boots that no one NEEDS but many want. Our prices range from about $100 up to about $500, retail. We have a very nice profit built but still sell short of MSRP. In my coaster business … no one NEEDS coasters and I run it on a cash basis. No cash? Go to www.NowGuaranteed.com – guaranteed payday loans, or it doesn’t get done/bought/etc. They could use saucers, plate, or napkins to protect their furniture. However they do make fine gift and are practical. My philosophy is that if I would not have it in my home or give it to a close friend as a gift, I won’t sell it. I understand that not everyone’s tastes are the same as mine. That is okay. Figuring my costs are some things are very easy and some are more difficult. My biggest urge that I fight is that there is money in the bank and I see something I think I “need” for my business but it’s really just a nice thing to have.

Let’s see, when last I wrote, it was late September. At that point I owed $161,840 on my mortgage and was discussing the heart-tugging advantages of paying it down vs. the cold reality of earning better via investments (I use Lending Tree for the most part to invest these days). I’m proud to say now that my current mortgage is $148,078, a reduction of $13,762 in less than 5 months.

There is a disclaimer in here, though. I’ve been having my bathroom renovated and this is the first big renovation on my home that has killed me financially. Normally I let my contractor just do it and am quite happy. But this has sucked so much more money than I thought it would! So in the last couple of months I’ve pulled back from paying extra on the mortgage and just tried to stay afloat.

So here’s where I am. I’m still adding money to my younger son’s 529. Older son’s 529 (college) is pretty healthy because of an insurance payout from when he was hit by a truck last April. I invest about $300 a month via Lending Club. My adjusted return is right above 14% these days. Love that.

I am trying to replenish my savings account so I have about 3 months of savings. I err on the lower side of that because I have stocks that are liquid if I needed them in a pinch and lines of credit of about $50,000 waiting if needed.

This year may prove to be interesting. I own part of a restaurant. Some of you may remember that my late husband was an executive chef and we were within 5 days of our grand opening when he died. I lost well over $100,000 because of the restaurant, but that’s behind me. Looks like the current owners may be selling (it’s in escrow). If so, I may get a check for $85,000 this year. Depending upon the tax hit, I will have some portion of that. (Still waiting for my tax person to get back to me with any implications.)

So what’s the plan? I could take the easy way out and just dump it towards my mortgage. But with my mortgage rate and the fact that I’ve paid down so much of the interest rate, I’m exploring other options. I must replenish my savings account. I also am going to have my contractor do hard estimates on the remaining big jobs left on the house – installing hardwood floors and fencing (I already have most of the supplies sitting here) and repairing the stucco on the house and repainting it. I will set aside money for those. Then with him, I would like to be at the point where I’m spending only up to $500 a month on maintenance and small jobs. Some of those things I can do myself, but I’d rather pay for them and cut my budget in other areas.

I also am going to set aside a bit of money for some elective surgery in about a year. Then honestly, I think I’m going to up my Lending Club investments.

Monthly, because of home savings, I’ll then be able to throw an extra of about $1000-$1500 per month towards the mortgage principal. I love the idea of my home being paid off before son #1 starts college. (Note – I live in a college town and the plan is that the boys will live here while attending college, I want them to graduate debt free.)

I continue to make some extra money on the side by boarding dogs via Rover.com and Dogvacay.com. I may be renting one of my rooms to a college student next school year.

So, overall things look good (particularly if the restaurant sells). I still read every message that goes through this group to keep being inspired by the journey everyone is taking.

and you lose 10% of your customers, you’re still coming out WAY ahead… I’ve heard Dave tell a couple of business owners to DOUBLE their prices, because business people tend to value their time lower than they should…

they might have been hacked when Target was I realized there had been one under $5 debit from a debit card at Michael’s. I found which family member had done it and then called our bank to tell them we had and we would need a new card.

The bank told me they had not been notified of any such threat and unless I wanted to pay a new card, possibly new account set-up fee they weren’t planning on doing anything about it. HUH? I got the person’s name and extension and then went higher up the chain. Nope, unless they were officially notified by Michael’s they were not going to foot the expense for the number change out. That until they were notified officially they were under no obligation to do so. I told them I was notifying them and it was all over the news. No deal

I opted to do the expense myself, better safe than sorry. Telling them I had made a record that I had officially notified them of the possible problem. Yesterday I received notice that Michael’s had officially notifying them now and they would be refunding my fees I paid. Well duhhhh! Luckily no charges had been made between the time I notified them and the new card replacement.